There's a question at the heart of the global economic malaise that is also a key question for John Key: what happens if everyone saves at the same time and stops spending?

The Prime Minister seemed to capture the mood before last year's election when he called on New Zealanders to vote for government austerity and "zero" budgets to keep net public debt below 30 per cent of gross domestic product.

This public desire for self-flagellation was counterintuitive to an MMP generation where politicians bought off voters with ever more of their own money.

This austerity theme has been central to this Government and the public have largely accepted it, because debt-reduction is at the forefront of our own household-budgeting thoughts.

Ever since the global financial crisis, most New Zealanders have been trying to pay down debt. Households kept their mortgage payments up at 7 per cent mortgage-rate levels, even though rates fell towards 5 per cent.

These repayments are almost offsetting a surge of lending at the fringes to first-home buyers and returning rental-property investors. Total household debt rose just 1.8 per cent in the year to the end of June to $187.9 billion, which is less than growth in household income.

That means households are beginning to de-leverage, albeit slowly. Also, those who have already paid off their mortgages are saving more. Household deposits rose 8.8 per cent to $108.9 billion in the year to the end of June.

To put those two forces together, household deposits rose $16.8 billion in the past two years and household borrowing rose $5.2 billion. That means $11.6 billion less was spent in places where it could be recycled in the form of wages, profits and taxes.

This was one reason voters didn't mind voting for austerity. If voters were denying themselves spending, so should the Government.

Luckily for the economy, the Government had spent an extra $7.2 billion in the past two years. That offset most of the $11.6 billion less being spent by households.

But now we have a problem. The Government is carrying through on its "zero" budget over the next couple of years. There will be no offset to the restrictions in spending by households as they save more. Businesses and exporters are expected to pick up the slack by spending and earning more.

The trouble is they're not, in part because the rest of the world is also spending less and saving more.

This is the paradox of thrift. It makes sense for one household to save but when every household, the Government and businesses do it in tandem, you get a recession. When every country does it, the whole world has a big, big problem.

Globally, almost all policymakers are fixated on austerity and debt-reduction. They're all assuming someone else will pick up the slack and spend money on whatever they're producing. The Chinese mostly assume it will be the Europeans and Americans.

The Americans and Europeans are hoping it will be the Chinese. New Zealand hopes it will be the Australians and the Chinese. It's as if a bunch of cricketing outfielders are all looking at each other shouting, "Yours!", only for the ball to drop between them.

At some point policymakers will have to pull out of this paradox of thrift, including Key.

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.